CIBC: EUR/USD Exchange Rate Forecast to Slide Further Towards 1.1600, Potential for Second-half 2021 Recovery
CIBC is downbeat over the short-term Euro US Dollar (EUR/USD) exchange rate outlook as the third coronavirus wave and serious difficulties surrounding the vaccine programme undermine confidence.
It expects EUR/USD to weaken to 1.1600 where it should find a base.
The bank does expect a Euro-zone recovery over the second half of the year which should also provide some significant Euro (EUR) exchange rates relief.
Confidence in the Euro-zone outlook has been damaged by a third wave of cases in major EU countries and forced a further tightening of social restrictions.
In this context, the low vaccination rates represent an additional threat to the economic outlook.
CIBC notes; “Moreover, barely one in eight in the EU has currently been vaccinated. This modest It adds; “total comes against broad based and rising vaccine hesitancy too.”
The bank adds; “The recent furore over the efficacy and safety of the AstraZeneca vaccine has further compromised what were already, in certain jurisdictions, shaky vaccine foundations.”
CIBC points to a recent YouGov poll which suggested that 61% of those polled in France and 55% in Germany think the AZ vaccine is unsafe, 55%.
Although there has been a notable reduction in long Euro positions, there is still scope for a further reduction, especially as many positions are already showing sharp losses.
CIBC adds; “As the eurozone continues to lag in the global vaccination race we expect EUR longs to continue to be taken off the table.
The bank also expresses concerns over potential delays to fiscal spending.
Therefore, against the backdrop of a relatively small aggregate fiscal impulse, the longer the virus is seen to hold back the unshuttering of businesses the greater the EUR position correction.
CIBC also notes the potential importance of the ECB policy review which will include debate over the inflation target.
“Should this include the potential toleration of a period of above target CPI, in effect ECB AIT, expect a further justification to unwind EUR, beyond mere Covid third wave concerns.”
Overall, CIBC expects the Euro US Dollar (EUR/USD) exchange rate to remain on the defensive in the short term with the risk of a single currency retreat to 1.1600.
There is scope for the Euro to gain support later in the year as the Euro-zone recovery kicks into a higher gear.
“We do expect the EU to step up the pace of vaccination into Q2, providing justification for a more constructive H2 macro outlook.”
Analyst Views on EUR/USD
The EURUSD short-term technicals are neutral/bearish ccording to Chris Osborne, Chief FX Strategist at Scotiabank. “The EUR chipped away further toward the 1.18 level earlier today before settling back into unchanged for the session.
“While the EUR continues to hold a bearish trajectory since late-Feb, the 1.18 area should stand as firm support.
“A failure to break below 1.18 could see the EUR rebound into the high 1.1875/900 area, with the mid-figure area and the 200-day ma (1.1866) standing as intermediate resistance.
“EURGBP is today on track to end its four-day winning streak but should find a solid floor at the 0.86 mark.”